Morning Report: Lousy jobs report

Vital Statistics:

 LastChange
S&P futures4,2059.8
Oil (WTI)64.33-0.37
10 year government bond yield 1.52%
30 year fixed rate mortgage 3.15%

Stocks are flattish this morning after a disappointing jobs report. Bonds and MBS are up.

The economy added 266,000 jobs in April, which was a huge disappointment compared to expectations of about a million. The unemployment rate ticked up to 6.1%. The labor force participation rate increased from 61.5% to 61.7%. Average hourly earnings were up a disappointing 0.3%, however this is due to more lower-paid leisure and hospitality workers getting jobs, which pulls down the average.

The 10-year traded down to 1.48% immediately after the news, but has recovered back above the 1.5% level. Mortgage backed securities are lagging the move, which is typical behavior when the 10 year has a big move one way or the other.

Note that the March payroll number was also revised downward by 146,000 jobs as well. Punch line: this is a lousy report, and the Fed isn’t going to even think about raising rates any time soon.

Apparently Google searches for “when is the housing market going to crash” are up big over the past month.

One of my pet peeves with the business press is the casual way people throw around the term “bubble.” Bubbles are extremely rare events, and housing bubbles happen once or twice a century. For a housing bubble to happen we need everyone – regulators, lenders and borrowers to buy in to the concept that real estate is special and cannot go down in price. Anyone old enough to sign a mortgage doc knows that isn’t the case.

Home prices are up big because we have underbuilt for 15 years and because interest rates are so low. This situation is nothing like 2007 when companies like Washington Mutual were offering negative amortization loans to anyone who could fog a mirror.

We don’t have a housing bubble right now. That said, you could make the argument that we have a sovereign debt bubble, especially overseas where there are still negative yields on the 10-year.

Housing affordability dropped in the first quarter, according to the Wells Fargo / NAHB Housing Opportunity Index. The index compares the typical mortgage payment for a 90 LTV loan at the median house price and calculates how many borrowers would have a 28% front-end DTI or lower. Right now, about 63% of borrowers earning the median income would have a 28 DTI or lower if they bought the median house and put 10% down.

This graph demonstrates how much interest rates play into the calculation. Yes, home prices matter, but they aren’t the only story. People who focus only on prices are missing half the picture.

Rocket was pummeled yesterday on its results and fears of a replay of the Great Pricing War of 2018 between Rocket and crosstown rival United Wholesale. United Wholesale is down 45% year-to-date while Rocket is more or less flat. Fun fact: at current levels, UWMC has a 5.6% dividend yield (at a 31% payout ratio). If you divide Rocket by the $1.11 special dividend it paid in March, you get a 5.8% yield (48% payout ratio). We are getting into REIT territory with these yields. I know mortgage bankers have never gotten love from the Street, but this nuts.

26 Responses

  1. Apparently Google searches for “when is the housing market going to crash” are up big over the past month.

    What would happen for the housing market to actually crash? If the pandemic didn’t do it, I can’t see how it’s going to happen while the economy is cooking again.

    If inventory has been underbuilt for 15 years, it means that it probably not underbuilt as of 2006? So in 2008 there wasn’t a serious shortage of supply, and maybe too much supply as certain mortgagees went into default. With so much more demand than supply, it seems like a whole lot would have to happen for the housing market to crash.

    I’m wondering how many of those Google searches are done by people in position to get cash out of other things–or non house-owners currently renting–trying to figure out when they might be able to buy a house?

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    • I think for housing to crash, you would need a complete financial crash, where no one could get credit and those that were over-extended would be forced to sell homes for cash.

      The Fed would pull out all the stops to prevent that from happening, however the black swan is the sovereign debt bubble I referred to. If that collapses then the banks are all insolvent at least on a mark-to-market basis.

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  2. Harris Bergeron is now real in California!

    https://www.rt.com/usa/523097-school-math-racist-affirmative-action/

    Released on Tuesday, the sprawling, hundreds of pages-long manifesto delivered by the California Health Department described how schools must focus on “active efforts” in mathematics. Starting at the beginning of K-12 education to ensure no “gifted and talented” or advanced tracking programs take hold among the faculty, the policy implies to parents that if they want the same free public education as anywhere else in their school district, they have no choice but to subject their kids to racist pandering and a warped new form of mathematics that many may find insulting.

    Indeed, the mathematically inclined children will be effectively held back until the last few years of high school, essentially forcing them to miss out on an opportunity to hone their talent at a younger age.

    “We reject ideas of natural gifts and talents,” the proposal states, insisting “there is no cutoff determining when one child is ‘gifted’ and another is not.” The proposal also wants to “replace ideas of innate mathematics ‘talent’ and ‘giftedness’ with the recognition that every student is on a growth pathway.”

    Keeping in mind Russia Today is to the Russian government what USA Today is to the US government–married at the hip to their respective government bureaucracies, especially intelligence apparatuses.

    But Reason is covering it, too:

    https://reason.com/2021/05/04/california-math-framework-woke-equity-calculus/

    The entire second chapter of the framework is about connecting math to social justice concepts like bias and racism: “Teachers can support discussions that center mathematical reasoning rather than issues of status and bias by intentionally defining what it means to do and learn mathematics together in ways that include and highlight the languages, identities, and practices of historically marginalized communities.” Teachers should also think creatively about what math even entails: “To encourage truly equitable and engaging mathematics classrooms we need to broaden perceptions of mathematics beyond methods and answers so that students come to view mathematics as a connected, multi-dimensional subject that is about sense making and reasoning, to which they can contribute and belong.”

    When I was a kid I didn’t appreciate math class like I should have. Still, as lazy and as poor a student as I was, I probably learned more than some of the best students going through this pedagogical framework are likely to learn.

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    • Gonna have to increase immigration big time to offset the surplus of wokesters who only excel in complaining.

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      • This is why I think most Republicans are on the wrong side of this issue currently. The problem isn’t immigrants. It’s white liberals.

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        • and you know once the left gets its welfare state, those borders will shut tight as a drum…

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        • No, that was Sanders argument and he lost. They will just tax more and/or fund it with the deficit.

          “Spending pays for itself”. They are all MMT now, and anti-racism trumps economics as the defining ideology.

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        • They are still going to blame the private sector when it all goes wrong, too.

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        • but yes, I agree on immigration. We are going to turn into Japan otherwise

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        • I think clarity of messaging is important. Lots of conservatives are pro-immigration, but some are that plus protected borders. I’m for large scale meritocratic immigration, and some but limited chain migration and refugee/asylum-seekers. But I was also for Trump’s building a wall.

          The first test of merit is a willingness and capacity to immigrate legally.

          I don’t think the GOP makes the that argument clearly. Trump certainly didn’t.

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        • “Trump certainly didn’t.”

          He did when he ran “Tall wall, wide gate”, then subsequently abandoned it with his actual actions.

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        • Considering that DeSantis is courting Trump and his base, I’m pretty sure DeSantis himself dumped this opportunity.

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        • But some of his MAGA allies outside of Congress — like LOU DOBBS, ANN COULTER and JENNA ELLIS — are less convinced, based on her actual voting record.

          Ann Coulter hasn’t been a Trump ally since, what, 6 weeks into his presidency? Already I’m not thinking this Politico article is on the up-and-up.

          DeSantis treats staff like expendable widgets. He largely relies on a brain trust of two: himself and his wife, CASEY DESANTIS, a former local TV journalist. Beyond that there are few, if any, “DeSantis people,” as far as political pros are concerned.

          I’m not sure what you mean by “dumped opportunity”–that DeSantis didn’t use this story to say, “Yeah, I’m not surrounded by a bunch of professional political flacks” or something? I can’t see these kind of stories and redounding negatively with his potential voters. Or you’re saying that DeSantis leaked this story or has been pushing it?

          Yes, DeSantis recently hired highly regarded operative PHIL COX. But there’s no savant that he’s been through the trenches with, like a KARL ROVE or DAVID AXELROD — let alone an army of loyalists. That’s probably not fatal to his White House prospects, but it can’t help.

          Bullshit. “Not fatal”. At worst, his lack of some corruption-encrusted, elitist political “consultant” (so far) is irrelevant. And best it’s an advantage. Karl Rove and Axelrod are two excellent examples of political svengalis who are well past their expirtation date, IMO. Especially Rove.

          The turnover in his office and among his campaign advisers is well known among Republicans: In three of his five full years in Congress, he ranked in at least the 70th percentile in terms of highest turnover in a House office, according to data compiled by Legistorm. In the governor’s office, he has only two staffers who started with him when he was a junior member of Congress.

          70th percentile? So there are 30 percent of congress-critter swith more turn over–for a three year period? This is all more “media crafting a narrative”. My prediction: there will be endless stories with a markedly “throwing everything against the wall to see what can stick” directed at DeSantis, because if he runs against Biden there’s a real chance he trounces Biden, IMO.

          But many former DeSantis aides we spoke with told a different story. They did not want to be quoted by name because of potential professional repercussions.

          Uh huh. Sorry, sure, might all be true, politicians are all kind of gross people, but I don’t trust unnamed sources in the MSM anymore.

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        • And I would argue the “wide gate” was a part of the argument that was made, but weakly. It’s not the kind of argument that can be made just in stump speeches, for one thing–you have to have a whole crew of evangelist, preferably most of the Mexican-American, going out there and making the case. You need unified messaging up and down the party apparatus, as far as you can get it. You need evangelist from the administration or campaign going out and signing up congress-critters and political pundits, and convincing them to go out and make the message on their own.

          Like Dubya’s (IMO excellent and shoulda-been-done) Social Security reform, fixing immigration is not a single-person job. It’s not a think the executive and some of his admin just say, “this is what we oughta do” and have anything happen. Evangelism, recruitment, and horse-trading would all be going on if the politician/political-group was serious.

          And, of course, pushing a corresponding policy while president would help.

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    • The plus side of this is that I will probably be employable until I am 95….

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  3. Nothing new, but still entertaining:

    “All of This Shit is High School
    let’s keep it real because I am keeping it real

    Freddie deBoer”

    https://freddiedeboer.substack.com/p/all-this-shit-is-high-school

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  4. This should be interesting. I would think the timing is perfect.

    https://misorobotics.com/

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    • The fatal flaw in the minimum wage argument. Technology gets inexorably better and cheaper.

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      • It’s a proxy war for a UBI …. which will become a bigger argument as more automation like this becomes universal. Which it will. 20 years from now I fully expect most fast food restaurants to be automated, and chances are grocery stores will have robot shoppers filling Internet orders.

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  5. The Republicans need to copy Boris Johnson. The current base of the Labour party sounds just like the Democrats here:

    “The Labour Party is no longer the party of the working-class. It must first accept this fact before it charts out a path forward. Currently, Labour’s voter base consists of socially liberal, college-educated and professional-class urban voters who hate their country. They consider themselves global citizens rather than British citizens; their cultural policies are at odds with lower and middle-class Brits, and their economic policies assert their class dominance while at best throwing crumbs at workers.

    The picture is actually much more simple than what people might want you to think: you cannot win the votes of the working-class, or the British people, if you vocally despise both.”

    https://alexeiarora.substack.com/p/how-uk-labour-lost-the-working-class

    Liked by 1 person

  6. https://www.city-journal.org/racial-politics-at-disney

    Disney is full to the gills with Critical Race Theory.

    Seems very strange to me.

    Next, participants learn about “white fragility” and are asked to complete an exercise called “How to Tell If You Have White Fragility.” The program interprets beliefs such as “I am a good person, I can’t be racist” and “I was taught to treat everyone the same” as evidence of the participant’s internalized racism and white fragility. Finally, at the conclusion of the 21-day challenge, participants are told that they must learn how to “pivot” from “white dominant culture” to “something different.” The document claims that “competition,” power hoarding,” “comfort with predominantly white leadership,” “individualism,” “timeliness,” and “comprehensiveness” are “white dominant” values that “perpetuate white supremacy culture”—and must be rejected.

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